Last week, when jurors ruled Samsung had indeed infringed on Apple Inc. (AAPL) and its iPhone, Apple fan boys everywhere rejoiced in a chorus of cheers. While Samsung can still appeal the verdict, for now it looks like Apple has scored a significant victory over its smartphone competitors. Clearly, any victory of this magnitude is good for at the very least a temporary uptick in stock price; it doesn't take a genius to figure that out. But this ruling could also affect Apple and its competitors over the long-term. Though the average person may see a ruling like this as only cementing Apple's monopoly over smartphones, in reality Apple only has 19 percent of the world's smartphone market share. In actuality, Apple has plenty of room to grow with its smartphone market share, so while some would tune out this ruling as same old same old for Apple, it actually could be what spurs Apple to surge ahead in its smartphone market share, making millions for investors in the process.
First off: the ruling. Apple had charged fellow smartphone manufacturer Samsung with violating numerous patents held by its iPhone, including the "pinch and zoom" effect anyone who's used an Apple product is familiar with, home screen icon arrangement and the shape of the iPhone's face. In the end, the jury agreed with Apple and awarded the company over $1 billion in damages as well as future royalties on existing infringing content. While not a financial deathblow to Samsung, it will have to significantly redesign its products as well as potentially scrap much of the designs for future phones. Steve Jobs had long held that Google's (GOOG) Android was a "stolen product" and would be gleeful at this verdict, as not only will Android phones have to be tweaked for Samsung, they'll have to be tweaked for every other manufacturer for fear of falling victim to the same fate as Samsung. Market analyst Michael Gartenberg explained this ripple effect to ABC News:
The jury reaffirmed Apple's claim that design may be obvious when you see it, but it takes work, vision and refinement to make it all come together as an experience," Gartenberg said. "At the moment the only handset vendors that probably aren't concerned are Nokia (NOK) (in fact, our friend and SeekingAlpha contributor Brian Nichols wrote a game changing piece on its patent portfolio) and Research in Motion (RIMM). With Apple patents being upheld this will force the larger industry toward greater innovation and differentiation. If you're a [consumer electronics] vendor thinking of 'borrowing' any aspect of Apple design, you might want to think twice.
Thus, this ruling reaches far beyond just Samsung. Again, it's easy to think Apple has a monopoly on smartphones, but this simply isn't the case. The current state of the smartphone market means Apple has plenty of room to grow, and given this ruling, it would be extremely surprising if that number doesn't rise. Companies are going to have to do things differently, and Android may have to make some significant changes to avoid future lawsuits.
Yep, this looks like a case of the rich getting richer. And though some may be skeptical of just how high Apple can climb given the fact that it's currently trading at around $675/share, this news certainly seems to cement Apple's place in the smartphone market going forward. Again - I can't reiterate this enough - Apple only has 19 percent of the market share in smartphones. As dominant as the iPhone seems, I don't see it going anywhere but up from here. Two years ago, MarketWatch's Cody Willard put a price target of $1,000 on Apple. You read that right: $1,000. When that article was written, Apple was trading in the $260 range. With every day that goes by, Willard looks better.
Of course, Apple will face challenges reaching as high as $1,000. For one, Google is now suing Apple over patents, and many experts are quick to point out that Google should show some serious aggression in court after shelling out cash for Motorola. The search giant will want to defend its newly acquired patents. Another challenge will be trying to increase smartphone presence in developing markets that can't quite afford iPhones, as Mr. Nichols points out in another article. Certainly iPhones will sell, and sell well, but scoring more international market share might be difficult, especially if Nokia can wedge its way in.
The bottom line here is that while the Samsung ruling is obviously good news for Apple's stock price in the short-term, it's actually in the long-term where the real money is going to be made. Let's be clear: Apple is a great company. It didn't need any help from the courts to keep making money; this just cements its place even further. There's little reason to believe Apple isn't going to keep shooting up toward that $1,000 mark. Smartphone manufacturers are going to have to develop new techniques to catch up to Apple, who in turn will stay two steps ahead.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article was written by a team member of Freedonia Freelance/Freedonia University.